The South African Competition Commission (SACC) recently announced that it will be conducting market inquiries into both the Public Passenger Transport sector (Transport Inquiry) as well as investigate the high costs of Data (Data Inquiry).

These inquiries are in addition to the SACC’s market inquiries into the private healthcare sector and grocery retail sector (which are still on-going) and the recently concluded LPG market inquiry.

There are mixed feelings about the benefits of market inquiries in South Africa. Market inquiries are extremely resource intensive (both from the SACC’s perspective as well as for the key participants in the inquiry) and the outcomes of the inquiries which have been concluded (including the informal inquiry in the banking sector) are lukewarm at best. There is little evidence available which suggests that the resources incurred in conducting market inquiries in South Africa are proportional to the perceived or intended pro-competitive outcomes.

Leaving aside this debate for now, the SACC’s most recent market inquiries are particularly interesting for a variety of additional reasons.

Firstly, in relation to the Transport Inquiry, the Terms of Reference (ToR) set out the objectives and the key focus areas of the inquiry. In this regard, the ToR indicate that pricing regulation is one of the key factors which allegedly creates an uneven playing field between metered taxis for example and app-based taxi services such as Uber.

It should be noted that the metered taxi association of South Africa had previously and unsuccessfully submitted a complaint to the SACC against Uber for alleged abuse of dominance. The success of Uber in South Africa has widely been regarded as pro-competitive.

Both prior and subsequent to the complaint against Uber, however, an overwhelming number of metered taxi drivers (both legal and illegal) have resorted to deliberate violent tactics in order to preclude Uber drivers from operating in key areas (i.e. at train stations). In fear of having themselves, their passengers and their vehicles harmed, many Uber drivers oblige. It would be most interesting to see how the SACC tackles this most egregious forms of cartel conduct, namely market allocation (albeit entered into under duress).

Over and above the ‘metered taxi v Uber’ debate, there are additional issues which the Transport Inquiry will focus on – including alleged excessive pricing on certain bus routes, regulated route allocation and ethnic transformation within the industry.

What will likely become a topic (directly or indirectly) during the Transport Inquiry are the allegations, as African Antitrust (AAT) had previously reported, that ‘the “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”’.

In this regard, the ToR indicates that “between 70% and 80% of the South African population is dependent on public passenger transport for its mobility”. The majority of these individuals would make use of ‘minibus taxis’.

The Transport Inquiry ToR do not mention this seemingly most blatant violation of competition law principles and it remains to be seen to what extent the SACC’s is prepared to investigate and assess hardcore collusion in the industry.

In relation to the second market inquiry, the SACC will also conduct an inquiry in relation to the high data costs in South Africa.

The High costs of data in South Africa seems to be key issue from the government’s perspective and the Minister of Economic Development, Mr Ebrahim Patel called for the SACC to conduct an inquiry into this sector. Further, the high costs of data in South Africa seems so important to economic growth and development that the Minister of Finance, Mr Malusi Gigaba, not only echoed Minister Patel’s calls for a market inquiry into high data costs, but identified such a market inquiry as part of his ‘14 point action plan’ to revive the South African economy.

Given that the three formal market inquiries which the SACC has commenced with to date have, only one (the LPG inquiry) has been finalized. Even the LPG inquiry took nearly three years to conclude. The private healthcare inquiry and the grocery retail inquiry which commenced in 2014 and 2015 respectively, still seem someway off from reaching any finality.

The length of time taken to conclude a market inquiry is, however, not the end of the matter from a timeline perspective. Following a market inquiry, recommendations must be made to Parliament. These recommendations may include legislative reforms or other remedies to address identified concerns with the structure of the market. Parliament may or may not adopt these recommended proposal.

Accordingly, it seems unlikely that from the date a market inquiry commences, that there will be any pro-competitive gains to the market within 5-7 years. That is assuming that the market presents anti-competitive features which can be remedies through legislative reform

While there appears to be consensus among most that data costs in South Africa are disproportionately high when compared to a number of other developing economies, the positive results envisaged to flow from a market inquiry is not only difficult to quantify, but will only be felt, if at all, a number of years down the line. Hardly a first step to revive the economy on a medium term outlook (let alone the short term).

Furthermore, and entwined with the SACC’s market inquiry into Data Costs, is that the Independent Communications Authority of South Africa (“ICASA”) decided to also conduct a market inquiry into the telecommunications sector, which includes focusing on the high costs of data. ICASA has indicated that it will liaise with other regulatory bodies including the SACC.

It is not clear what level of collaboration will exist between the SACC and ICASA although one would hope that due to the resource intensive nature of market inquiries, there is minimal duplication between the two agencies – particularly as their objectives would appear identical.

As a concluding remark, absent evidence which convincingly supports the beneficial outcomes of market inquiries in South Africa, perhaps a key priority for the authorities is to conclude the current inquiries as expeditiously as possible and conduct an assessment of the benefits of market inquiries (particularly in the manner in which they are presently being conducted), before initiating a number of additional market inquiries.

Market Inquiries in Africa – An Overview

Most African jurisdictions with competition laws have included provisions in their respective legislations that allow the competition authorities to conduct market inquiries.

Market inquiries have proved to be useful tools for competition agencies in numerous jurisdictions, particularly in Europe, and is becoming a common and increasingly popular tool amongst an number of African agencies as well.

Despite the benefits that may flow from a market inquiry, it is important that competition agencies appreciate and have due regard to the costs associated with such inquiries. Market inquiries are very time consuming and onerous for market participants and should be used sparingly. Having said that, the focus of market inquiries in most African jurisdictions tend to be on markets which the relevant authorities have identified as having a large impact on consumers.

In other words, socio-economic considerations appear to be a significant factor during the screening process used in deciding whether to institute a market inquiry. Sectors such as food, healthcare and banking (at an individual consumer level) are some of the common industries which have been ‘prioritised’ or identified as important sectors.

While the number of market inquiries which have been concluded on the African continent is limited, as competition agencies gain more expertise and confidence in their mandates, there is likely to be a significant increase in the number of market inquiries instituted and firms conducting business in Africa, particularly within ‘priority’ sectors, should be cognisant of this.

We set out below a brief overview of the market inquiries which are currently being conducted in the various African jurisdictions.

South Africa

There are currently three market inquiries which are underway, one into the private healthcare sector and the other into the grocery retail market. The third market inquiry is in the liquefied petroleum gas sector.

The private healthcare inquiry was launched on the basis that cost of private health carein South Africa is a concern to the competition authorities. A revised statement of Issues for public comment was announced on 11 February 2016 and comments are to be submitted by 11 March 2016.

The grocery retail inquiry is focussed largely on the stricture of the market and the ability of smaller or informal retailers to compete, but will also address issues such as “long term lease” clauses (which has already been adjudicated upon by the Competition Tribunal).

The third market inquiry is into the LPG which was launched in August 2014 is expected to conclude in March 2016.

The only previous market inquiry concluded in South Africa was into the banking sector. This inquiry was conducted on an informal basis as there were no formal legislative powers bestowed on the competition authorities to conduct market inquiries.

Swaziland

The Swaziland Competition Commission (SCC) announced in January 2016 that a market inquiry has been launched into the retail banking sector. The SCC stated that retail banking service offered to consumers, micro and medium enterprises remained the most important sub-sector of banking. It is, however, the ‘current account’ which is the central product to be used as the starting point for the inquiry.

Zambia

On 1 February 2016, the Zambian Competition Authority (CCPC) announced that it will be conducting a market inquiry into the vehicle towing industry. While the CCPC indicated that it wishes to understand the “conditions of competition in the market”, although the inquiry came about as the CCPC had received numerous complaints from consumers that emergency towing operators were charging high prices. It remains to be seen whether this inquiry is focused predominantly on competition-law issues, or rather consumer-protection laws.

Botswana

The Competition Authority in Botswana (CA) is currently underway with a market inquiry into the grocery retail sector, focusing on shopping malls and in particular, the impact of long term exclusivity leases on competition in the market.

COMESA

Consistent with the competition authorities of South Africa and Botswana, the COMESA Competition Commission (“CCC”) has also launched an investigation into the impact that shopping malls have on competition. The CCC announced that it will carry out their inquiry by taking samples from the member states.

According to the South African Competition Commission, the agency has issued “Terms of Reference for the market inquiry into the Liquefied Petroleum Gas sector”:

The Commission has today issued the Terms of Reference (ToR) for the LPG market inquiry. The ToR formally launches and outlines the scope of the inquiry.
The Commission is initiating the inquiry because it has reason to believe that there may be features of the sector that prevent, distort or restrict competition. The Commission hopes that the inquiry will assist in understanding the state of competition in the LPG sector.

According to the Terms of Reference, the objectives of the market inquiry include:

Analyzing the current regulatory pricing framework with the aim of determining whether regulation could be improved in order to limit the exercise of substantial market power by market participants;

Examining whether the supply bottlenecks in the liquefied petroleum gas industry may serve to create circumstances or incentives that serve to distort, prevent or lessen competition;

Determining whether features currently prevalent in the market increase costs of switching to a prohibitive level when customers seek to switch between resellers of liquefied petroleum gas;

Assessing the extent of the barriers to entry and general competition dynamics at various levels of the supply chain within the industry; and

Making recommendations that may serve to improve the state of competition.

The Commission has identified the participants in the market inquiry process as including business enterprises within the liquefied petroleum gas chain, such as manufacturers, wholesalers, distributors and retailers, other related enterprises, end-users, government departments, public entities, regulatory authorities, industry associations and any other stakeholders that may be able to provide information relevant to the market inquiry.

BDLive reports that approximately “300,000 tons of LPG is manufactured in SA annually, generating turnover of about R1.5bn. Six refineries, Sapref, Sasol Synfuels, PetroSA Synfuels, Enref, Chevref and Natref produce and supply LPG.

Major resellers such as Afrox, Easigas, BPSA and Total Gas distribute it bulk or in a repackaged form. Afrox, Easigas and Sapref also imported at least 6,100 tons of LPG through facilities in Richards Bay, Port Elizabeth and Durban.”

In its Strategic Plan over the next 3 years, the GCCPC indicates that it purposefully did not identify any priority sectors, to allow it to commit to investigating prohibited practices regardless of the market or its size. The Minister endorsed this approach given the need for independent agencies like the GCCPC to ensure that the competition playing field is leveled, that barriers to entry are low and that “the rules of the game” are reasonable. The Minister continued that simply having competition regime cannot produce or ensure competition in the market unless this is facilitated by government policies and enforcement.

Sectoral Market Inquiries: As in South Africa, whose Competition Commission has launched its first-ever market inquiry into the state of competition in the healthcare sector in terms of the Competition Amendment Act of 2009, the GCCPC is also empowered to launch “market studies” under section 15(k) of the Gambian Competition Act. A market study enables the GCCPC to consider both policies and enforcement simultaneously, thereby promoting competition in the economy, according to the Minister. The Minister explained that the aim of the market study was to assess competition in a particular area and recommend ways of improving it to the benefit of the economy and consumers in general.

As noted in our prior reporting, the Minister spoke at the opening of a workshop on the “Tourism Market Study” and to bring the concept of competition law closer to home, he placed emphasis on the increasing awareness about competition law within the tourism fraternity, forums such as the workshop will contribute substantially to the spread of competition culture and improving levels of compliance of the Competition Act, which would be beneficial both for the economy as well as individual businesses.

Abdou Kolley, Minister of Trade and Employment, gave a Tuesday speech addressing his competition agency’s tourism market study, undertaken according to section 15(k) of the Competition Act, attempting to garner support for the benefits of free-market competition. “Competition does not emerge on its own”, noting that the GCCPC’s enforcement and oversight activities were necessary to lower entry barriers and assure the absence of illegal price-fixing and other illicit conduct.

“The GCCPC is mandated by the competition Act 2007 to pursue any evidence of cartels, abuses of dominance and other illegal anti-competitive activities in any sector of the economy and I am confident that they will continue to do so.”

Minister Kolley

The Director General of the Gambia Tourism Board, Benjamin Robert, was quoted as agreeing with the minister, saying that the GCCPC’s report was “timely” and noted that the domestic tourism industry possessed certain characteristics of dominance in some sectors, with over 50% market share by some market players.

The defensive justification for the Commission’s healthcare inquiry by its acting chief has widely caused eyebrows to be raised…

The sector has recently been the subject of significant attention from the Commission, the South African health minister in particular, and the S.A. government in general. In spite of the perilous state of South Africa’s public health system, the government appears to have invested more time in deflecting from the obvious problems in the public branch by subjecting the private sector to a costly investigation. From a procedural-history point of view, it is interesting to note that the market inquiry provision was brought into effect by way of Section 6 of the amended South African Competition Act. Although there were other areas of the legislation to be amended, it is noteworthy that only the market inquiry provision was brought into effect.

Many have suspected that the motivation behind the private healthcare inquiry was based on aspirations from outside the ambit of the Commission, particularly since the launch of the South African government’s National Health Insurance policy scheme (designed to achieve the noble aim of universal health insurance coverage, not entirely unlike the United States’ “Obamacare” effort) may ultimately cause the demise of a robust private healthcare sector.

Independence of Commission questioned

With this in mind, what is perhaps most interesting is a recent public submission made by the newly appointed 37-year old Acting Competition CommissionerTembinkosi Bonakele in the South African media. In an article co-authored with Ms. Paremoer, the Commission principal responsible for the healthcare inquiry, entitled “Market inquiries an important advocacy tool” (also published in the Sunday Times), Bonakele attempts to deflect any suggestions of government involvement in (or other ministerial influence over the pursuit of) the market inquiry. This approach seems at odds with Mr Bonakele’s predecessor, Shan Ramburuth – who was unceremoniously let go by the same government in a public display of shaming last year – in seeking to justify the motivation behind the private healthcare inquiry. (We note that the present government has an apparent history of “letting go” unruly cabinet members in unusual and rather bombastic fashion, see here and here.)

Ramburuth’s Commission had previously stated expressly, for instance, that the inquiry was intended at least in part to review the sector for collusive behaviour, while Mr. Bonakele now disavows this rationale and claims that any such findings would merely be a side effect of the inquiry (“[o]f course, during such an inquiry, we may come across anti-competitive practices that need to be rooted out”).

In his piece, the Acting Commissioner seeks to reassure those who “remain confused about the […] intended market inquiry,” and states that the “inquiry is not a stalking horse“:

“we are simply seeking to understand how to improve efficiency and competition” in what he calls the “complicated web” of the healthcare industry.

Is this a case of Shakespearean “the [man] doth protest too much”, especially when keeping in mind that the private healthcare sector has previously been acknowledged to be competitive and efficient. Mr. Bonakele has previously emphasised his independence, despite being referred to in the press as Minister “Patel’s man”:

“I haven’t responded to the media debate out there because I don’t think one has to stand on a mountain and say ‘I’m independent’. Actions speak louder than words.” [Source: BDLive]

Acting Commissioner Bonakele

The aim of the inquiry, according to the Acting Commissioner, is to improve competition and efficiency in the sector to such a degree that the ordinary man on the street will have full access. A very noble goal indeed, but when juxtaposed with the fundamental function and intention of the NHI,it is highly contradictory: the private healthcare sector is, by definition, not in the business of providing access to everybody. The public NHI body’s own slogan, on the other hand, shows that the national insurance programme fulfills precisely that role: “NHI is premised on the ideology that all South Africans are entitled to access quality healthcare services.”

What is perhaps of greater concern (with a wider applicability than just the healthcare sector, public or private) to competition-law enforcement in South Africa as a whole, is the confluence of the government’s industrial policy ambitions with otherwise supposedly independent Commission investigations and its competition adjudication based in the pure law & economics of antitrust. As previously reported in our piece on political interventionism in South African competition law, the Commission should seek to demonstrate its complete independence from the cabinet and executive branch as a whole, and avoid falling into the trap FTC Chairwoman Edith Ramirez warned against: the “proper goals” of competition law are best solved when a competition authority is focused on competitive effects and on consumer welfare and its analysis is not “interrupted to meet social and political goals.”

In sum, one must hope that Mr. Bonakele can be taken at his word when he says that, while “[m]aybe people think the minister will use the commission as a tool, but it’s just not possible. This is a legal process we are talking about.“

The president set 1 April 2013, as the date on which section 6 of the Amendment Act will become effective.

Section 6 empowers the S.A. Competition Commission (“Commission”) to conduct an inquiry into the general state of competition in any market in South Africa, without referring to specific prohibited conduct or a particular firm. Under this provision, the Commission may initiate a market inquiry when it has reason to believe that any features of an identified market may be distorting or restricting competition in that market, e.g., where a market is not functioning optimally, but where no prohibited conduct, such as cartel activity, has been identified.

Section 6 also regulates how the Commission may conduct such market inquiries. More specifically, the Commission may use its powers to request information from firms but may not use its search and seizure (i.e., dawn raid) powers to gather information for a market inquiry.

At the conclusion of the market inquiry, the Commission must publish its findings and may also make recommendations to the Minister of Trade and Industry or other regulatory authorities relating to any competition matters identified.